And We Need Better Business Role Models
From buyouts to burnouts, where does ownership sit with companies and can we scale WHILE making the economy fairer?
I am super curious and interested in the way we do business on both an individual level at a societal one. Before we dive to much deeper, let’s start with what is a business model?
A business model describes how an organisation plans to generate revenue. More precisely, it details what products or services a firm aims to sell, how it intends to market and distribute them, and what expenses it will incur in the process. Those inputs then determine the profit that said company is expected to generate on an ongoing basis. The term ‘business model’ first appeared in academia in 1957, yet remained scarcely used up until the late 1990s. However, the turn of the century saw interest in the concept greatly accelerating.
There is no one best business model; there are multiple factors to consider when deciding what business model is best for you and your business. Including, but not limited to (according to Productmint);
- The skills of the founding team (which might just be you)
- The capital requirements to get the business off the ground
- The amount of capital at the founders’ current disposal as well as their ability to attract additional funding
- The competitiveness of the industry
- The current and expected size of the market
- The cost of acquiring and retaining customers
- External factors such as the political climate, interest rates, technological advancements, and so forth
- Current laws and regulations
- The availability of skilled labor
- The time it takes to get to market
- Finding a problem worth solving
Technology also directs and changes how we do business and with the advent of the internet and associated services, such as cloud storage, no-code tools, collaboration platforms, ad-based promotion platforms, and so forth, traditional business plans have become increasingly less relevant. There are many more technology driven models like Dropshipping, Data-as-a-Service (DaaS) Business Model, Freemium Business Model, iBuyer Business Model, Tokenization Business Model and more.
Let’s pause and take a breath for a moment. For the majority of this audience, most businesses here are not the kind where you throw out a half baked idea, test the market, if it appears popular, seek loads of investment to get rich fast. Rapid testing and iteration of ideas, have become the dominant form of business model validation among tech-based and many other startups. These types of businesses are talked about all of the time but in reality 63% of tech businesses fail within the first five years.
What Fast Paced Greed Leads To (but we still praise it…)
Let’s take WeWork for example. WeWork promoted itself as an edgy co-working space complete with daily free beer, adult summer camps and a “work hard, play harder” atmosphere rivaling technology giants like Google and Facebook. As a coworking space owner, I love the idea of community spaces that bring people together. I just don’t like their business model.
Founder Adam Neumann insisted that what made the company unique was its deeply entrenched sense of community among those who rented space at WeWork locations and raised $12 billion from venture capitalists who believed in Neumann’s optimistic vision. But as the company was getting ready to go public, disturbing details about the company’s operations—including a history of negative profits, a bizarre succession plan involving Neumann’s wife and reports that the sense of community had been greatly exaggerated—sent the company into a tailspin, according to CNBC’s “American Greed,” which aired on American TV.
While WeWork employees, who voiced complaints about long hours, required attendance at after-hour functions and no overtime pay, were left without jobs, Neumann himself cashed in and walked away from his post as CEO with more than a billion dollars. WeWork’s employees described the pace at the company’s various locations as frenetic, with long hours and low wages, but at first, those long hours seemed worth it because they believed they were getting in on the ground floor with a company primed to go public and make it big.
As investors continue to pour millions into the company, Neumann cashed out at least $700 million by selling off some of his stake or borrowing against some of his holding. While he wasn’t arrested or accused of any crimes, the WeWork board wanted Neumann removed and were willing to pay him an estimated $1.7 billion to step down. Although Neumann raked in the cash, his employees got laid off and were forced to leave the company, which ultimately did go public in 2021.
Jill Sederstrom said,
“This system completely broke down. The guy who drove this company into the ground, he has walked away rich beyond belief. The people who empowered him, they made money, they’re doing just fine,” Duhigg said. “The people who got punished are the employees of WeWork, who just showed up, trying to do their job everyday.”
The billion dollar profits are always the headlines, the cost seems to fade into the background. WeWork is still operating but just last week, The New York Stock Exchange has notified them that it will be delisted from the exchange in six months if its share price doesn’t return to above $1, the standard benchmark for keeping a company on the NYSE.
We Need Better Business Models
“Through the Better Business Act campaign, we are aiming to change the law to make sure every single company in the UK, whether big or small, puts balancing people, profit and planet at the heart of their purpose and the responsibilities of their directors. The world needs business at its best. The Better Business Act is a business-led campaign. Our mission is to change the law to make sure every company in the UK aligns the interests of their shareholders with those of wider society and the environment. Businesses can help to solve our most pressing problems. The climate emergency and social inequality are profound and pressing problems, thrown into sharp relief by the COVID-19 crisis. The failure of business to align the interests of shareholders with those of wider society and the environment has contributed to the enormous set of challenges we’re facing that threaten people’s health, wealth and the natural world. These problems can only be solved if we harness the enormous potential of entrepreneurs, innovation and enterprise to create an economy where business is at its best. It can no longer be a choice to align the long-term interests of people, planet and profit. The Better Business Act will transform the way we do business, so that every single company in the UK, whether big or small, takes ownership of its social and environmental impact, helping to solve some of the UK’s most pressing challenges. Freedom for business leaders to act in everyone’s interests. We want to free up decision-makers to act in everyone’s long term interests – combining traditions of good stewardship and responsibility with new ideas to meet the challenges of the 21st century. The best way to do this is to change the law that governs how businesses act. Businesses across the UK have proven this way of doing business as a model for sustainable growth that drives innovation and entrepreneurship. A small change in the law can create a big change in the world. That’s why we are urging all of Britain’s business leaders to call on the UK Government to amend Section 172 of the Companies Act to ensure that all businesses are legally responsible for benefiting workers, customers, communities and the environment while delivering profit. ” -Douglas Lamont
I believe we can do better through our business. We can contribute to the wellbeing economy and stop prioritising profit over everything else. We need new leaders, better business who care about the planet, people and longer term impacts. Part of the pressure also needs to be placed on investors-they drive many of the behaviours of growing businesses. Luckily, more institutional investors recognise environmental, social, and governance factors as drivers of value. The key to investing effectively is to integrate these factors across the investment process. But there needs to be more.
How Can We Support You?
If these topics are of interest, we would love to hear from you. We have been putting together the templates for webinars and talks on the subjects of business models and sustainable investing. If you are interested in hearing from experts in these fields, please get in touch, email@example.com.